Tax Fairy

CBO Director Doug Elmendorf testified before the Senate Budget Committee today and dropped something of a bombshell. Extending the Bush tax cuts, he said, will “probably reduce income relative to what would otherwise occur in 2020.” The reason is simple: Debt.

Elmendorf doesn’t deny that tax cuts stimulate the economy. But they don’t stimulate it that much, he says, and over the long run, the net economic growth from the tax cuts will be quite small. The net deficit impact won’t be.